In an absentee trial yesterday, Cleveland Housing Court Judge Ray Pianka fined Destiny Ventures LLC $140,000 for failure to repair code violations at a vacant two-family house at 3677 East 117th St.

Destiny Ventures bought the property last March for $1,500 from EMC Mortgage (Bear Stearns), which acquired it at Sheriff’s sale in January 2006. (Yes, that means it’s been sitting vacant for two years.)

Several out-of-state companies have purchased dozens of houses in Cleveland, some for less than $1,000.

One of the companies, Texas-based Econohomes, provides affordable housing to buyers with tarnished credit, Jeff Ball, the chief executive officer, said. Econohomes provides the loans and carefully screens customers to ensure they are reliable, Ball said.

“We buy property at such a deep discount we are able to sell it to people who are economically disadvantaged at very attractive terms,” Ball said. “These properties otherwise would most likely sit vacant.”

Former Cleveland Law Director Craig Miller represents the company in Cleveland. He says Econohomes’ owners are “very well-intentioned, very good businesspeople.”

Compare and contrast with this forum posting from “Amber Work” who identifies herself as an Econohomes representative:

Econohomes has properties all over the U.S. We sell the properties as-is and they are priced to move. I work with investors and owner occupy buyers on a daily basis. Currently, we don’t have a website that is accessible to the public, but there is a link to our inventory that is pasted below[link]… We are buying large packages of properties and have more coming online every 2-3 weeks.

Maybe Ms. Work just didn’t get Mr. Ball’s memo about careful screening, etc.

Econohomes currently holds title to seventy Cuyahoga County properties — fifty-nine in Cleveland, nine in East Cleveland, and one each in Euclid and Garfield Heights. Almost all have been acquired since July. The biggest single source has been Destiny Ventures (twenty properties), but Econohomes has also bought houses directly from Lasalle Bank, Deutsche Bank, US Bank, Wells Fargo, and ten other subprime lenders.

Here’s one they’ve owned since August 28 at 3271 West 34th Street (purchase price $1,500). Click for a closeup:

P.S. The lawyers and Court TV obsessives among us can get a free download here of CSU law professor Kathleen Engel’s 2005 paper, “Do Cities have Standing? Redressing the Externalities of Predatory Lending”, published in the Connecticut Law Review. Among other things, the paper discusses “public nuisance” as a possible basis for city claims against predatory lenders. (Thanks, Frank Ford.)

But Cleveland’s suit is even more unique because the city has based its complaints on a state law that relates to public nuisances. The suit also is far more wide-reaching than Baltimore’s in that it targets the investment banking side of the industry, which feeds off the mortgage market.

Investment bankers at these companies buy subprime mortgages from lenders, then sell mortgage-backed securities to investors. It is a legal practice, known as securitization, that became increasingly popular during the housing boom earlier this decade.

Jackson and city Law Director Robert Triozzi said Cleveland should have been excluded from the frenzy. They pointed to housing prices that remained relatively flat as real estate values jumped elsewhere, as well as a manufacturing downturn and widespread poverty.

The suit claims that even though these issues were well documented, investment bankers continued to feed loans to hungry investors at the expense of borrowers buried in interest.

“Ultimately, they’re responsible,” Triozzi said of the investment banks. “They knew the economic conditions in which they were operating here. They decided that didn’t matter.”